Dec. 6 (Bloomberg) -- Hungary will probably be able to
sustain state finances even as Moody’s Investors Service cut the
country’s debt rating, on expectations the new government will
continue to narrow the budget deficit, Aviva Investors said.

The government of Prime Minister Viktor Orban, who took
office in May, plans to cut the budget shortfall to 2.94 percent
of gross domestic product, down from a targeted 3.8 percent this
year. The previous government’s austerity measures narrowed the
shortfall from a record 9.3 percent four years ago.

“I don’t think Hungary is actually in an unsustainable
situation necessarily,” Kieran Curtis, who helps manage $2
billion of emerging-market debt including Hungarian bonds at
Aviva, a unit of Britain’s second-largest insurer, said by phone
from London. Hungary may be able to build on austerity programs
started by former Prime Minister Gordon Bajnai, he said.

The forint weakened the most among global currencies, bond
yields rose and the cost of insuring against default increased
for the first time in four days after Moody’s lowered Hungary’s
credit rating to one step from junk. The rating company cited
concern that the government’s policy of plugging budget holes
with “temporary measures” won’t work.

Hungary, the first European Union member to obtain an
International Monetary Fund-led bailout in 2008, is levying
special taxes and funneling assets from pension funds to plug
the budget gap. Orban’s government plans to announce spending
cuts of as much as 800 billion forint ($3.8 billion) at the end
of February, Economy Minister Gyorgy Matolcsy said on Nov. 23,
without providing details.

The forint lost 1.3 percent, heading for the biggest daily
drop since July, at 3:10 p.m. in Budapest. The yield on bonds
maturing in February 2016 rose 10 basis points to 8.06 percent
and the BUX Index of stocks dropped 1.6 percent.

“If reforms come along, there is a lot of upside in the
assets,” Curtis said.